Articles Posted in Chapter 7 Bankruptcy

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car exemptions bk  One of the common questions we get is whether or not someone filing bankruptcy can keep their car.  The answer is Yes, but you do have to pay to keep it.  How you do that depends upon how much equity is in the car, whether you own or lease, whether it is jointly owned, and whether you are current on the payments.  The information below applies to Florida exemptions, the laws may be different in other states and you may still be governed by another state’s exemptions if you’ve recently moved to Florida.

Chapter 13:  A Chapter 13 can be used to catch up on missed payments.  It also can be used to value an underwater vehicle that you have owned for more then 910 days to what it is worth now.  I’m sure you know this, but just in case, the phrase “underwater” means you owe more than it is worth.  If you are current on payments, and the vehicle is worth more or equal to what you owe you would just “pay direct” and simply inform the court that you are continuing to make monthly payments.  There is no need to reaffirm the vehicle, as the original credit agreement continues to exist throughout the bankruptcy.

Chapter 7:  You can also keep a vehicle in a Chapter 7.  In Florida, you are able to keep certain exempt property which includes $1,000 personal property, $1,000 vehicle equity, and a special exemption of $4,000 if you rent, or you do not own a home that you are keeping or otherwise receiving the benefit of a homestead.  So if you are able to claim all three exemptions, for a single debtor, that would mean you can keep $6,000 worth of vehicle or belongings.  Anything more than $6,000 you can make arrangements with the bankruptcy trustee to pay to keep.  So for example, if your vehicle is worth $10,000, but you still owe $8,000, that means you have $2,000 in equity.  If you also had $1,500 in personal belongings and $1,000 in the bank, you would have a total of $4,500 which would fall with the allotted $6,000 exemption.  You could keep the vehicle and just continue to make the payments.  In order to do so, the creditor will require you to sign a reaffirmation agreement which is essentially a new agreement to pay for the vehicle.  The terms are generally the same although in some cases the amount owed or interest rate can be negotiated down.

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mortgage lenders
Consumer debtors routinely have various related difficulties with mortgages following the filing of a Chapter 7 bankruptcy.  Unfortunately, the first thought is that the bankruptcy attorney messed up when that really is not the case.  They think the attorney put the home into the bankruptcy when it was meant to be left out.  However, all debt and assets must be listed and included for disclosure purpose in a bankruptcy.  Debtors who want to keep their home, have a choice to reaffirm the debt by signing a Reaffirmation Agreement or by simply continuing to make monthly payments.  In most cases, it is advantageous for a debtor not to reaffirm a mortgage debt, but rather just continue to maintain payments, particularly when the home is under water and no equity exists in the property.  If they reaffirmed the debt and eventually had to give up the house because they moved to take another job for instance, they would be back on the hook for the mortgage debt.

So what kind of problems come up when a debtor does not formally reaffirm the debt in bankruptcy, but their intention is to keep the property and continue making payments:

  • Whether or not a reaffirmation of a mortgage is required
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The FTC guidelines state that credit reports can include debts discharged in bankruptcy so long as they’re reported as discharged with a zero balance. 16 C.F.R. 600 app. § 607(b)(6). See also Schueller 559 Fed.Appx. at 737; Horsch, 2015 U.S. Dist. LEXIS 37476, 2015 WL 1344836, at *10. The only guidance on this at all close comes from the Federal Trade Commission regulation. It states, “A consumer report may include an account that was discharged in bankruptcy (as well as the bankruptcy itself), as long as it reports a zero balance due to reflect the fact that the consumer is no longer liable for the discharged debt.” 16 C.F.R. 600 app. 607(b)(6)(2010).

For more information about how a bankruptcy filing will affect you, please contact us at Arkovich Law

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loan mod2
We are still doing loan mods for our clients – three alone this week – one in a Chapter 13 bankruptcy and two outside of bankruptcy.  One has the docs to sign, another was presented with options including a principal reduction, and the other should be finished with underwriting and accepted in less than 30 days.

The June 2015 MHA Handbook Ver.4.5, revised on January 6, 2015 to Ver. 5.0, covers some of the procedures to be followed for borrowers who have filed bankruptcy and are seeking a loan mod to keep their home:

8.5 Borrower in Bankruptcy Borrowers who are currently in a TPP and subsequently file for bankruptcy may not be denied a permanent modification on the basis of the bankruptcy filing. The servicer and its counsel must work with the borrower or borrower’s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures. Servicers should extend the TPP as necessary to accommodate delays in obtaining court approvals or receiving a full remittance of the borrower’s trial period payments when they are made to a trustee, but they are not required to extend the trial period beyond two months, resulting in a total five-month trial period. In the event of a trial period extension, the borrower shall make a trial period payment for each month of the trial period including any extension month.

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bankruptcy keyboard.jpgSometimes our Florida foreclosure defense clients wait too long to challenge a foreclosure. This is the primary reason why we attorneys always post advice and blog incessantly about not letting a mortgage company get a default judgment or challenging a default if one occurs.

However, a client can also wait too long on the back end to challenge a final judgment. In Branch Bank & Trust Co. v. Michael’s Enterprises of Virginia, Inc., 519 B.F. 916 (Bankr. E.D. Va. 2014), a homeowner waited until a week after the sale and sought a temporary injunction which was denied. The sale proceeded and several months later the debtor refused to vacate the property and filed bankruptcy.

In the bankruptcy, the debtor attempted to collaterally attack the judgment already entered. Claims cannot be re-litigated, they can only be appealed. The Court awarded sanctions against the debtor, its shareholder and its legal counsel for $10,000. The debtor in this case attempted to argue that the foreclosure sale was a fraudulent transfer because it was for less than 70% of the market value. This argument failed to impress the U.S. Supreme Court in BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) which was followed by the bankruptcy court.

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debtfreetoday.jpgBankruptcy filings are down substantially in 2014 to only 910,090 which is the lowest number since 2007. Yet at the same time, people are still losing their homes especially in Florida, wages are flat or down and the cost of living continues to rise other than gas which isn’t too bad).

So why are the bankruptcy filings down? Well in some areas, the economy is picking up. Interest rates to carry debt remain low. But overall, I think some of this has to do with the fact that people cannot even afford to file. Many folks in the Tampa Bay area come to us to file when they receive a tax refund – but this year, many people had their tax refund intercepted due to defaulted federal student loans.

There is a way to file bankruptcy on the creditor’s dime that no one really talks much about: talking to an attorney about pursuing debt collection violations. Not all bankruptcy attorneys do this, so you need to talk with someone who actually sues for creditor violations plus files bankruptcy.

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Great news for Florida consumers with student loans! On April 21, 2015, the Middle District of Florida, Tampa Division, Bankruptcy Court issued a ruling on behalf of our client that a National Collegiate Student Loan Trust would be barred from pursuing student loans in Florida because the five year statute of limitations had expired. In doing so, the Court entered Final Judgment in favor of our client.

However, NCSLT apparently did not like this ruling and has subsequently filed an appeal. As neither party has submitted briefs yet, the outcome of the appeal remains unknown and should be resolved in approximately 4-6 months or less.

These clients owe a devastating $161,000 in private student loans. They also owe only about $20,000 in federal loans for which payments are current in a repayment program. However, prior to hiring us, these clients were not presented with realistic payment terms from the private lender. The household income for this family of four is only $40,000 as they have two young children and the wife stays at home to care for them.

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student loan reform.jpgToday, a legislator introduced a bill to treat student loan debt as other unsecured debt in a bankruptcy filing. This would be huge! As everyone knows, a bill isn’t a law and it could be awhile, but if this gains steam, we may have some relief for graduates over the past 20 years who are facing student loans that the new governmental forgiveness programs don’t cover.

Rep. John K. Delaney, D-Md., introduced the Discharge Student Loans in Bankruptcy Act (H.R. 449) on January 22, 2015. The bill itself can be found here. This link can also be used to track its progress through the House, Senate and finally the President if it makes it through. I just checked the link and the text of the bill isn’t up yet, but it should be in a couple days. I’ll be curious to see how it is worded and other legal commentators’ opinions of its likelihood of passage.

Presently, the burden to discharge student loans is not easy. The Brunner standard of what it takes to show an undue hardship is very difficult to meet. However, this 1987 case is starting to come under fire because of the impossible standards imposed. Over the past year, there have been approximately a dozen federal cases providing a framework for a new standard allowing for discharge of student loan debt. Brunner has some competition now.

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EraseMortgage_iSTock.jpgWe are still able to strip second mortgages in a Chapter 7 bankruptcy here in Tampa Bay. However, there is a risk that the window of opportunity may be closing. Bank of America has filed several challenges to the U.S. Supreme Court in the past couple of years. Two of these cases, the U.S. Supreme Court has granted certiorari and has agreed to hear them: Bank of America v. Caulkett, Case No. 13-1421 and Bank of America, v. Toledo-Cardonna, Case No. 14-163. Currently, we are in the only Circuit that allows the stripping of second mortgages and HOA liens in a Chapter 7. The only requirement is that the home be worth less than the first mortgage at the time of filing. Once stripped, the second mortgage lien is gone forever, unless the bankruptcy discharge is revoked which is very rare.

Although we can strip an HOA lien, they are a little different in that they will likely have to be paid on transfer of the property by sale or death, even though avoided. Several cases out of the Southern District of Florida have addressed this in the past year. In re Sain, 2013 Bankr. LEXIS 4564 (Bankr. S.D. Fla. Oct. 29, 2013); In re Sain, 2014 U.S. Dist. LEXIS 12219 (S.D. Fla. Jan 31. 2014) and Stonebridge Gardens Sec Two v. Campbell, 2014 U.S. Dist. LEXIS 7195 (S.D. Fla. 2014).

Many people are still not aware that we can strip a second mortgage in a bankruptcy. So please help spread the word to those who may be in an underwater home, barely treading water themselves. This may be a once in a lifetime opportunity to use this law to get the home back to a position where equity can be rebuilt for retirement. With property values going up, sooner is better than later.

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door shut.jpgAs a Florida consumer bankruptcy attorney, we have been able to remove and strip off second mortgages due to the 11th Circuit’s decision in McNeal a couple years back. It is the only Circuit in the country that allows for a second mortgage lien to be stripped from homestead property. The key has been to show that the home does not have value over and above the amount owed on the first mortgage.

Bank of America, N.A. has an appeal in the works that the U.S. Supreme Court has just accepted for review per DS News.

So the window may be closing. Anyone who wants to strip their second mortgage on their home should contact a bankruptcy attorney right away — in case the court starts staying cases pending the appellate review, or in the event that the U.S. Supreme Court rules against homeowners.

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